Controversy has surrounded upwards only rent review clauses for quite some time. It had been hoped that Section 132 of the Land and Conveyancing Law Reform Act 2009 would resolve this issue once and for all. This section provides that any rent review clause in a Lease created after 28 February 2010 will be construed as providing that the rent payable following a review shall be an amount which is less than, greater than or the same as the existing rent. In other wards, irrespective of what is included in the clause the reviewed rent can be equal to, lower than or higher than the existing rent.

However, our experience to date is that landlords are reluctant to agree to anything other than an upwards only rent review clause in the hope that this legislation will be amended in the future.

There has always been a perception that the rent review process is biased in favour of landlords. Following on from that, A Working Group on Transparency in Commercial Rent Reviews was established by the Minister for Justice and Law Reform on 4 March 2010. Its terms of reference were to consider the operation of the current system for determining the rent payable on foot of a rent review clause, with particular emphasis on the arbitration process and the adequacy of the information available to all parties. It was asked if necessary to make such recommendations for changes as it thought was appropriate. The main reason behind the establishment of the working group was due to the difficulties expressed by tenants, particularly in the retail sector. For many tenants, rents were remaining at levels exceeding the rent at which these properties would let on the open market.

They were also asked to look at the perceived gaps of inaccuracy of information available in relation to commercial rent reviews and were asked to address concerns about a perceived lack of confidence on the part of tenants in both the arbitration process and in arbitrators.

The main recommendations made by the working group are summarised below:-

  • It recommended the adoption of an industry wide acceptance of a code of practice called the Rent Review Arbitration Code 2010. This code was attached to the report and they asked for all stakeholders to commit to their willingness to adhere to the code.
  • It recommended that this code be reviewed no later than July 2013.
  • Having regard to the difficulties in obtaining reliable information about rent review transactions, it recommended the establishment of a public database. This would contain details of letting agreements and rent reviews in the market.

A number of ancillary recommendations were made as follows: -

  • Parties to a lease should ensure that the Lease is drafted in such a way as to allow either party to institute the rent review process, unless there is a reason to the contrary.
  • As a first instance, an arbitration clause should be drafted in such a way as to allow the parties to reach agreement in relation to their arbitrator of choice. When agreement cannot be reached, then either party should be able to approach a pre agreed body to make the appointment.
  • In cases where a nominating body is approached to make an appointment, it should do so within a reasonable period of time and ideally within one month from the date of receipt of the application.
  • The costs of the appointment should fairly reflect the administration costs of the organisation involved in the appointment.
  • Parties should consider whether or not referral to mediation may be of assistance before trying to resolve the dispute by arbitration.
  • Ideally rent reviews should take place as close to the rent review date as is possible in order to avoid any necessary gap between market conditions prevailing at that date and those prevailing at the time the review actually takes place.

It will be interesting to see over the next few years whether or not this code is adopted by stakeholders. Furthermore, will it be of any assistance to tenants who are in the unfortunate situation of being tied in to leases that contain upwards only rent review clauses and which were in place before Section 132 came in to effect. We will also need to wait and see whether or not these new provisions will lead to tenants trying to exercise break options in their leases with a view to negotiating better terms with their landlords or someone else. Will the recommendations prove a disincentive for Landlords who may otherwise have been inclined to give concessions to particular tenants? All this remains to be seen. The only certainty for the moment is that Landlords will not give up on their upwards only rent review clauses without a fight!

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